COLA Increase Watch 2022-2023

Updated: August 13, 2022

Table of Contents

    What might the 2023 cost of living allowance (COLA) increase look like? It’s too early to tell definitively, but we’ll keep tracking inflation data and other factors that could impact 2023 COLA rates here.

    2022 COLA

    Back in October, the Social Security Administration announced a 5.9% COLA increase for 2022 for nearly 70 million Social Security and Supplemental Security Income beneficiaries.

    It’s the largest increase in 40 years. Soaring inflation, a resurgent economy and other factors contributed to the sizable COLA increase, according to the Social Security Administration.

    Inflation increased by half a percent in December to 7% for the year, according to the Consumer Price Index for Urban Wage Earners and Clerical Works (CPI-W).  The U.S. Bureau of Labor Statistics (BLS) compiles the CPI-W. It is the basis for COLA adjustments for military, federal and Social Security recipients.

    To calculate yearly COLA adjustments, the Social Security Administration compares third-quarter inflation measurements from July, August and September to the same quarter in the previous year. In short, 2022 inflation data will determine 2023 COLA rates.

    2023 COLA (Cost-of-Living Adjustments) Increase Watch

    2022 COLA & CPI Summary

    • The July CPI-W (292.219) increased over the last 12 months by 9.1%.
    • Since July 2021, the all items index increased 8.5% before seasonal adjustment.
      • The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis after rising 1.3% in June.
        • The index for used cars and trucks declined 0.4% in July.
        • The food index increased 1.1% in July, and the food at home index increased 1.3% as well.
        • The energy index decreased 4.6% in July, contributing to nearly half of the all items increase.
    • The index for all items less food and energy increased 0.3% in July.
    • Since July 2021, the index for all items less food and energy increased by 5.9%, the energy index increased 32.9% and the food index increased by 10.9%.

    2022 Cola Effective and Payment Dates:

    • Retired military veterans, U.S. Department of Veterans Affairs (VA) rates for compensation and pension for disabled veterans and surviving families became effective Dec. 1, 2021. The first checks with the new rates went out on Dec. 31, 2021.
    • Social Security benefits became effective with December 2021 benefits, payable in January 2022.
    • Federal Supplement Social Security Income and Social Security Disability Insurance (SSDI) payment levels became effective for payments made for January 2022.

    2022 COLA (Cost-of-Living Adjustments) Increase Results

    Q3 (July-Sept.) 2021 COLA & CPI Summary

    • The average Q3 (July-September) CPI-W (268.421) increased year over year by 5.9%.
      • The September CPI-W (269.086) increased year over year by 5.9%.
      • The August CPI-W (268.387) increased year over year by 5.8%.
      • The July CPI-W (267.789) increased Year over Year by roughly 6%.

    Veterans’ Compensation Cost-of-Living Adjustment Act of 2021

    In October, President Joe Biden signed this year’s cost-of-living increase for veterans, which ties the veterans benefit increases to Social Security COLA increases.

    The legislation directed the VA to increases – as of Dec. 1, 2021 – the rates for VA disability, additional compensation for dependents, clothing allowances for certain disabled veterans and Dependency and Indemnity Compensation (DIC) for surviving spouses and children.

    While Social Security benefits are automatically adjusted annually to keep pace with inflation, Congress must pass legislation annually to provide COLA for veterans and surviving family members receiving those types of compensation from VA.

    Why a COLA Increase May Not Help Social Security Recipients

    Senior citizen household spending outpaces COLA because the measurements that determine COLA don’t reflect significant expenses like healthcare and gas.

    If Medicare climbs at an equal or higher rate, premiums may offset COLA  increases.

    Will Chained CPI Replace CPI-W?

    Chained CPI is a new method for measuring inflation and was recently adopted with the new tax plan. Chained CPI dampens inflation by as much as 0.2% to 0.3% which has some advocacy groups concerned that this method will carry over to COLA.

    COLA (Cost-of-Living Adjustment) Affects These Programs and Stakeholders:


    Quarterly CPI-W for 2021 and 2022

    Year20212022Year over Year Increase
    Quarter 1257.025279.4729.04%
    Quarter 2263.754288.3809.33%
    Quarter 3268.421TBDTBD
    Quarter 4253.994TBDTBD
    Annual252.248TBDTBD

    Monthly CPI-W for 2021 and 2022

    Month2021 CPI-W2022 CPI-WYear over Year Change
    January255.296276.2968.2%
    February256.843278.9438.6%
    March258.935283.1769.4%
    April261.237284.5758.9%
    May263.612288.0229.3%
    June266.412292.5429.8%
    July267.789292.2199.1%
    August268.387TBDTBD
    September269.086TBDTBD
    October271.552TBDTBD
    November273.042TBDTBD
    December254.081TBDTBD

    2021 Official COLA Measurement – CPI-W
    2020 2021
    July 252.636 267.789
    August 253.597 268.387
    September 254.004 269.086
    Third-quarter total 760.237 805.262
    Average (rounded to the nearest 0.001) 253.412 268.421
    Inflation According to the CPI-W 1.3% 5.9%

    The table below shows estimated future cost-of-living adjustments (COLAs) as determined by assumptions in the 2021 Trustees Report.

    COLA Estimates by Year

    YearCOLA
    20215.9%
    20222.4%
    20232.4%
    20242.4%
    20252.4%
    20262.4%
    20272.4%
    20282.4%
    20292.4%
    20302.4%

    The Board of Trustees regards the intermediate estimates as their best estimates.

    The CPI-W takes into account eight major spending categories:

    • Food and beverages
    • Housing
    • Apparel
    • Transportation
    • Medical care
    • Recreation
    • Education and communication
    • Other goods and services

    How COLA is Determined

    The Cost-of-Living-Adjustment (aka Cost-of-Living Allowance) is determined by the Bureau of Labor Statistics’ Consumer Price Index (CPI-W). It is based on the percentage increase of the CPI-W from the 3rd quarter of the previous year versus the current year’s 3rd quarter (July, August, and September).

    Veterans who retire during the current calendar year will receive a temporary partial COLA due to already receiving a military pay raise in January (View the 2022 Military Pay Charts here).

    • The COLA increase is only set at the CPI-W if the increase is less than 2%.
    • If inflation is between 2 to 3% then COLA is set at 2%.
    • If the CPI-W is greater than 3% then COLA is set at 1% below the CPI-W.

    COLA Versus Federal Pay Increases

    Pay increases for current federal workers and COLA for retired workers often differ because they are based on changes in different economic variables.

    Changes in private-sector wages and salaries determine federal Pay increases. The government indexes federal civil service worker pay to private-sector salaries to ensure government pay remains competitive with the private sector.

    Cost-of-living adjustments (COLA) ensure that a retiree’s income maintains buying power for the same amount of goods and services every year.

    History of COLA (Cost-of-Living Adjustments) Since 1975
    Year COLA Year COLA Year COLA
    2022 5.9% 2006 4.10% 1990 4.70%
    2021 1.3% 2005 2.70% 1989 4.00%
    2020 1.60% 2004 2.10% 1988 4.20%
    2019 2.80% 2003 1.40% 1987 1.30%
    2018 2.00% 2002 2.60% 1986 3.10%
    2017 0.30% 2001 3.50% 1985 3.50%
    2016 0.00% 2000 2.50% 1984 3.5%
    2015 1.70% 1999 1.30% 1983 7.40%
    2014 1.50% 1998 2.10% 1982 11.20%
    2013 1.70% 1997 2.90% 1981 14.30%
    2012 3.60% 1996 2.60% 1980 9.90%
    2011 0.00% 1995 2.80% 1979 6.50%
    2010 0.00% 1994 2.60% 1978 5.90%
    2009 5.80% 1993 3.00% 1977 6.40%
    2008 2.30% 1992 3.70% 1976 8.00%
    2007 3.30% 1991 5.40%

     




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